CHAPTER THREE
Patent Cases
Traditional Media Patent Cases with New Media Implications
Markman v. Westview Instruments Inc., 517 U.S. 370 (1996).
Markmanwas the most important patent case of its decade. In a unanimous opinion, the US Supreme Court affirmed the Federal Circuit and held that determining the meanings of patent claims is a task for the courts to decide as a question of law, not questions for juries to decide as questions of fact.
Before this case, determining the meanings of patent claims (often called “construing the claims”) was a task for a jury; a process that often led to unpredictable outcomes even after years of litigating the patent.
Now, common practice is for District Courts to hold Markmanhearings, where the words of the claims that are disputed by the parties are construed by the Court. Determining whether an accused product infringes a claim of a patent is thus a two-step process. First, the Court construes the claims; second, a jury determines whether the claims fit the accused device or process.
In Markman, the patent at issue was directed at managing inventory at
a dry cleaner. Claim 1 of Markman’s patent stated that the claimed product could “maintain an inventory total” and “detect and localize spurious additions to inventory.” Thus, the term “inventory” was a disputed term. The jury found infringement of Claim 1, but the District Court subsequently granted the defendant’s motion for judgment as a matter of law based upon the Court’s own construction of the term “inventory.” Markman appealed this ruling, but both the Federal Circuit and Supreme Court affirmed, holding that it is within the province of the Court to construe the claims of a patent.
Graham v. John Deere, 383 U.S. 1 (1966).
Graham is the first modern US Supreme Court case to address the critical issue in patent law of “obviousness.”
As previously discussed, to secure a patent on an invention, the invention must be new, useful, and non-obvious. Before Congress revised the Patent Actin 1952, obviousness was a creature only of the common law. Graham was the first case after the 1952 revision when the Supreme Court heard a case involving the obviousness standard.
In Graham, the Court set forth the test that is still used by courts today. Under Graham, courts look at four factors (often called the “Graham factors”) to determine if an invention would have been obvious at the time the invention was made to a person of ordinary skill in the art to which the subject matter pertains. These factors are: the scope and content of the prior art; the differences between the prior art and the claims at issue; the level of ordinary skill in the art; and, finally, secondary considerations of non-obviousness, such as commercial success, long-felt but unsolved need, and the failure of others.
The patent at issue in Graham covered a device that was “designed to absorb shock from plow shanks as they plow[ed] through rocky soil [which] prevent[ed] damage to the plow.” The Court determined that this invention was obvious, because it was not sufficiently different from the prior art. Thus, the Court affirmed the finding of the lower court that the patent was invalid.
KSR Int’'l Co. v. Teleflex Inc., 550 U.S. 398, 127 S.Ct. 1727 (2007).
In KSR, the US Supreme Court rejected the “rigid approach” of the Federal Circuit in favor of an “expansive and flexible approach” on whether a patent claim was obvious in view of prior art.
In KSR, the patentee sued the defendant for infringement on a patent claiming an adjustable vehicle control pedal connected to an electronic throttle control. The defendant argued that it was merely obvious, and therefore not patentable, to combine these elements. The defendant’s win in the District Court was overturned by the Federal Circuit. The Federal Circuit held that there was no teaching, suggestion, or motivation (TSM) to combine prior art that in combination disclosed the claimed invention. The Supreme Court rejected the Federal Circuit’s rigid TSM application.
The Supreme Court stated that “[a] person of ordinary skill is also a person of ordinary creativity, not an automaton.” The Supreme Court held that the “obviousness analysis cannot be confined by a formalistic conception of the words teaching, suggestion, and motivation, or by overemphasis on the importance of published articles and the explicit content of issued patents.” The Supreme Court stated that “[i]n many fields it may be that there is little discussion of obvious techniques or combinations, and it often may be the case that market demand, rather than scientific literature, will drive design trends.” Thus, the Supreme Court noted, “[g]ranting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may, in the case of patents combining previously known elements, deprive prior inventions of their value or utility.”
Turning to the facts in KSR, the Supreme Court held that the District Court was correct to conclude that, as of the time of the alleged invention, “it was obvious to a person of ordinary skill to combine [a pivot-mounted pedal] with a pivot-mounted pedal position sensor.” Indeed, “[t]here then existed a marketplace that created a strong incentive to convert mechanical pedals to electronic pedals, and the prior art taught a number of methods for achieving this advance.”
Graver Tank & Mfg. Co. v. Linde Air Products, Co., 339 U.S. 605 (1950).
Graver Tank is the first US Supreme Court case to squarely address patent infringement under the “doctrine of equivalents.”
It is now commonly recognized that there are two types of patent infringement: literal infringement and infringement under the doctrine of equivalents. To prove literal infringement, a patentee must prove that the words of the claims of the patent “literally” read on the accused device (essentially, copy the original). Alternatively, as set forth by the Court in Graver Tank, in order to prevent an infringer from making minor changes that would place the accused device outside of the literal words of the claims, a patentee may prove equivalent infringement by showing that the accused device “performs substantially the same function in substantially the same way to obtain the same result.”
Here the Court agreed with the trial court: a patent that claimed a welding composition having a combination of an alkaline earth metal silicate (e.g., magnesium) and calcium fluoride was infringed under the doctrine of equivalents by a welding composition having silicates of calcium and manganese (manganese is not an alkaline earth metal). Even though this minor change places the accused recipe for the welding composition outside of the literal words of the patent claim, the accused recipe performs substantially the same function in substantially the same way to obtain the same result, so is infringement under the doctrine of equivalents.
State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 (Fed.
Cir. 1998).
State Street Bank is an important Federal Circuit decision because it establishes that “business methods” can be patented.
A business method patent (or process) is a patent that covers a way of doing something in a business or transactional setting. The Federal Circuit held that as long as the way of doing something produces a “useful, concrete and tangible result,” then the invention is patentable subject matter under section 101. To be patentable, the business method must also meet the other criteria for patentability, namely, it must still be new and non-obvious.
The patent at issue in State Street Bank was for a “Data Processing System for Hub and Spoke Financial Services Configuration.” The “spokes” were mutual funds that pooled their assets into a central “hub.” This method produced a share price that was used for several types of investment decisions. Because this process produced a “useful, concrete, and tangible result,” namely, a share price, the Federal Circuit held that the patent was not invalid for failure to claim statutory subject matter as required by Section 101.
Since the State Street Bank case, the US Patent Office has issued numerous business method patents, many of which are Internet-related. Later cases, especially Bilski v. Kappos, have re-affirmed the validity of business method/process patents. The legal theories that establish the validity of business method/process patents provide much of the superstructure for software patents.
Bilski v. Kappos, 130 S. Ct. 3218 (2010).
In Bilski, the US Supreme Court, in addition to deciding the particulars of the case at hand, re-affirms the validity of business methods/process[TL1]/methods patents, deferring speculation that these, and the software patents that depend on business methods/process/methods, might be set aside as non-patentable.
This case involved the question of whether a patent could issue on a procedure for instructing buyers and sellers of commodities how to protect against the risk of price fluctuations in the commodities market. Recognizing that Section 101 of the Patent Act covers “any new and useful process, machine, manufacture, or composition of matter . . .…” the Court acknowledged that the subject matter of the claimed invention must meet the definition of a process. The court below had strictly applied the so-called “machine-or- transformation test,” that defines an invention as a “process” only if: “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” The Supreme Court found that the Court of Appeals incorrectly concluded that the “machine-or-transformation test was the exclusive test to determine whether a process met the criteria of patentability. Although the Supreme Court was reluctant to limit process patents to the “machine-or-transformation test,” the Court nonetheless found the claims not patentable because the claims were attempts to patent abstract ideas.
It will take years for the full impact of Bilskito be known, even though business methods and software patents survived Bilski. As a result, start-up companies may face increasing risks of defending against other companies’ process/methods patents.
Phillips v. AWH, 415 F.3d 1303 (Fed. Cir. 2005) (en banc).
The issue before the Court in Phillips was the role that extrinsic evidence should play in construing a patent claim. In Phillips, the Federal Circuit set forth that extrinsic evidence is useful, but that it is less significant than intrinsic evidence.
Phillips was a decision that was heard en banc (i.e., by all the judges on the Federal Circuit), as opposed to the typical panel of three judges that usually hears an appeal. The issue before the Court in Phillips was the role that extrinsic evidence should play in construing a claim. There are two categories of evidence that courts look to in construing a claim. The first is intrinsic evidence, consisting of the claim itself, the specification, and the prosecution history. The second is extrinsic evidence, consisting of dictionaries, encyclopedias, expert testimony, and anything else that is not intrinsic evidence.
In Phillips, the Federal Circuit ruled that extrinsic evidence is useful, but that it is less significant than intrinsic evidence. Thus, Phillips generally requires a District Court to consult extrinsic evidence only if the intrinsic evidence is insufficient to construe a claim. Nonetheless, the Court explained that extrinsic evidence can play a role in claim construction, depending on the specific facts of a case.
The patent in Phillips was for a type of vandal-resistant wall that contained
“internal steel baffles.” The Federal Circuit looked to the intrinsic evidence, i.e., the claims, the specification, and the prosecution history, and construed the disputed term “baffles.” The Court reached a different construction for the term “baffles” than the District Court and accordingly sent the case back to the District Court for further proceedings.
New Media Cases and Patent Law
Alice Corp. Pty. Ltd. v. CLS Bank Int’l,134 S. Ct. 2347 (2014).
Alice Corp. v. CLS Bank case presents the question of patent eligibility of an invention implemented by computers. It is also the first time in forty years that the US Supreme Court has addressed the propriety of patent protection for software.
Since the 1970s, thousands of software patents have been granted, and patent litigation surrounding software patents has also grown exponentially.
At issue in the case are Alice Corp.’s patents for “the management of risk relating to specified, yet unknown, future events.” In particular, the patents relate to a computerized trading platform used for conducting financial transactions where a third party settles obligations between a first and a second party so as to eliminate “counterparty” or “settlement” risks. Settlement risk refers to the risk to each party in an exchange that only one of the two parties will actually pay its obligation, leaving the paying party without its principal or the benefit of the counterparty’s performance. Alice’s patents address that risk by relying on a trusted third party to ensure the exchange of either/ both party’s/parties’ obligations. There are several patent claims involving “method,” “system,” and “computer-readable medium” claims.
In what some claim to be a muddled en banc decision, a plurality of the D.C. Circuit Court of Appeals concluded that the asserted claims are not patent eligible and thus invalid. The Supreme Court unanimously affirmed those findings. However, the Supreme Court tailored it’s findings narrowly, conforming to the specifics of the case instead of addressing the broader issues of software patents in general.
Amazon.com v. Barnesandnoble.com, 239 F.3d 1343 (Fed. Cir. 2001).
Amazon.com v. Barnesandnoble.com provided important insights into the nature of business methods/process patents applied to the Internet, in this instance, the foundational “1-click®ordering method.”
In this Internet technology case, Amazon.com (Amazon) brought a patent infringement lawsuit against Barnes & Noble (BN) based on its business method patent for its 1-click® ordering method, that Amazon still uses today. Based on prior use of the Amazon.com wWeb site, the wWeb site “remembers” a user’s information so that shipping address, billing address, and the like do not need to be re-entered to order an item. Thus, as the feature’s name implies, a user simply clicks the 1-click® button, and the item is scheduled to be shipped.1
BN, on its wWeb site, installed a similar feature to Amazon’s 1-click® button, which it called “Express Lane.” This feature allowed a user to click one button to order a product. Amazon brought suit against BN, alleging that the Express Lane feature infringed its patent.
The trial court agreed with Amazon and granted a preliminary injunction in its favor (effective November 4, 1999—during the winter holiday shopping season), prohibiting BN from using the Express Lane feature. To grant a preliminary injunction in a patent infringement case, a court must determine that it is likely a patentee will prevail on its claim of patent infringement.
The trial court determined that it was likely that the Express Lane feature infringed Amazon’s patent, and thus it granted the preliminary injunction (upon Amazon’s fi ling of an undertaking of $10 million to be awarded to BN should it be determined later that the preliminary injunction should not have been granted).
On February 14, 2001, the Federal Circuit, however, reversed. It found that while Amazon was likely to prevail on its claim of infringement, BN presented prior art evidence sufficient to cast doubt on the validity of Amazon’s patent, and the Court reversed the preliminary injunction. Ultimately, the parties reached a confidential settlement, and the validity of Amazon’s patent was not fully determined. Although an appellate ruling of this nature usually sets precedents for future cases, subsequent litigation and Patent Office actions move precedents away from this ruling in favor of other legal determinations. These details are discussed below.
IPXL Holdings , L.L.C. v. Amazon.com, Inc., 430 F.3d 1377 (Fed. Cir. 2005).
IPXL Holdings , L.L.C. v. Amazon.com, Inc. further established the validity of Amazon’s patent holding over 1-click®shopping. However, please see the Special note following the analysis of this case as it further clarifies the matter.
In IPXL Holdings, Amazon was also a defendant concerning its claims over the 1-click® technology. In this case, IPXL sued Amazon, claiming that Amazon’s 1-click® system infringed several claims of IPXL’s claims in a US patent entitled “Electronic Fund Transfer or Transaction System.” Amazon prevailed on a motion for summary judgment and also was awarded its attorney’s fees. On appeal, the Federal Circuit upheld the summary judgment in Amazon’s favor but reversed the award of attorney’s fees because Amazon did not timely file its motion for attorney’s fees. This ruling further solidified the importance of the 1-click® patent and remains a potent example of the power of business process patents in the Internet economy.
Special Nnote cConcerning the 1-click®pPatent
The patentability of 1-click®shopping on the Internet is widely contested. As reported by Paul Ryan Paul[TL2] in 2010, the USTPTO[TL3] approved Amazon’s revision of their original patent application. The revision came in response to a 2007 challenge by